5 Gotham City is home to three firms, which each dump taxie glop into the Gotham River. Stagg Industries dumps 200 units of glop, Ace Chemical dumps 300 units of glop, and Wayne Enterprises dumps 400 units of glop. Stagg is able to eliminate glop at a cost of 50 per unit. Ace is able to eliminate glop at a cost of 80 per unit. Wayne is able to eliminate glop at a cost of 60 per unit. (a) Suppose the Gotham City government mandates a legal limit of 200 units of glop per firm. Assuming all three firms comply, how much glop will be eliminated? Determine the total cost to society of reducing the pollution. (b) Suppose the government instead issues 200 tradable permits to each firm. Each permit gives the right to dump one unit of glop. Determine how many permits will be bought and sold by each firm. (c) Determine the total cost to society of reducing the pollution with the tradable permits.
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